Debt Ratios for Residential Lending
Lenders use a ratio called "debt to income" to decide the most you can pay monthly after you've paid your other recurring debts.
About your qualifying ratio
For the most part, conventional mortgages need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.
The first number in a qualifying ratio is the maximum amount (as a percentage) of your gross monthly income that can be applied to housing costs (this includes loan principal and interest, private mortgage insurance, homeowner's insurance, property tax, and homeowners' association dues).
The second number in the ratio is the maximum percentage of your gross monthly income that can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes credit card payments, car payments, child support, etcetera.
Some example data:
With a 28/36 qualifying ratio
- Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
- Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
- Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, we offer a Loan Qualification Calculator.
Guidelines Only
Don't forget these are only guidelines. We'd be thrilled to help you pre-qualify to help you determine how much you can afford.
At AmeriBest Mortgage, we answer questions about qualifying all the time. Call us: 3217777277.